Rising Price Of Gold

4 Reasons Why The Price Of Gold Has Risen Steeply

The past year has seen the price per troy ounce of gold rocket to previously unheard of heights. At one point, the precious metal had passed $1,400 an ounce, the highest level in history. While the price has since pulled back a bit, it continues to hover near this record.

The main reason for the upward pressure in prices is because more people are rushing to buy the metal. The question is, why? It’s worth taking a closer look at the underlying causes of gold’s recent price hike. We’ll address four of them below.

#1 – Concerns Regarding Inflation

When the Federal Reserve expands the monetary base, dollars become worth less than before. As a result, more dollars are required to purchase the same batch of goods. This is called price inflation.

When inflation gains momentum, people switch from dollars into assets that are considered more stable. One of these assets is gold. As noted earlier, the more people who buy gold, the higher the price. The Obama administration has mentioned they will focus on improving the economy during 2011. This suggests they may contract the monetary base to shore up the dollar’s value. If this occurs, the price of gold can be expected to fall.

#2 – A Safe Haven In Uncertain Times

Another reason people have been buying the precious metal is because of economic and political uncertainty. Gold has historically been considered a “safe haven” in such times. Those who buy it can remain relatively certain about its value since the metal cannot be arbitrarily manufactured (which would dilute the current supply).

The opposite effect might be expected to occur if people gain more confidence in the economy and political environment. In such a case, the price per troy ounce would likely decline.

#3 – More Promising Than The Bond Market

In the past, U.S. Treasuries were also considered a “safe haven” (though for different reasons than gold). However, over the last few years, yields on Treasuries have plummeted. This has motivated many people to abandon bonds, and move their assets into gold.

Many analysts think the Federal Reserve may begin to raise rates next year since rates have been kept artificially low for so long. If this happens, yields on Treasuries may improve, drawing cash from gold, and thus causing a reduction in the precious metal’s price.

#4 – Gold Is Tangible

This reason is psychological. Small investors enjoy having gold in their portfolios because the precious metal is tangible (unlike stocks or bonds). You can hold it; you can feel its weight in your hands.

While this dynamic is driven less by economic theory and more by instinct, it has an impact on the price per troy ounce. As the stock market continues to rise, however, small investors may tire of holding the lower-earning precious metal. If they begin to sell in volume, the price of gold can be expected to drop.

Selling Your Scrap Gold Online

Given the reasons above for the rise in the price of gold, it is worth considering whether you believe the current trends are sustainable. Many precious metals experts feel they are not. If these experts are correct, the price may plummet quickly, eroding much of the value people have come to expect from the precious metal. Now may be a good time to sell your scrap gold and broken gold jewelry to an online buyer.

Once you agree to the price offered by the buyer, you can expect a check to be mailed to you within a single day. The funds can be put to good use paying bills, reducing debt, or taking a vacation you have been forced to postpone. Or, you can move the money into other investments that many believe will outperform gold over the next twelve months.

Avoid waiting too long to sell your scrap gold. Once the price per troy ounce drops, you may only be able to recover a fraction of its current value.